Why do churches pay less taxes?

We have talked to Tymofii Brik, professor at Kyiv School of Economics and the best young Ukrainian sociologist of 2018, about the reasons why churches have a special tax regime.

Why are Ukrainian churches exempt from some taxes?


This is definitely not an easy question to answer. Different countries treat church taxes differently, as it usually depends on historic background and secularization processes (secularization is the separation of church from the state).


Many European countries, which remained religious for longer, underwent secularization very slowly, while in the USSR it was introduced forcefully, as the government banned religion.  That is why churches in many Western countries have retained a bundle of rights. For example, all the members of Lutheran and Orthodox communities in Finland pay church taxes. There is an interesting case in Spain, where citizens have a right to choose if they agree to pay a part of their income as a church tax.


In the former USSRthe church was oppressed. Only in the late 1980-s – early 1990-s, the church returned into people’s lives. Then the church started restoring its legal status and material base, getting back properties and buildings taken before. There was a unique historical moment, when the church received an opportunity to establish a new legitimate order of co-existence with the state. The church together with loyal policy makers promoted an idea that  religion and church is an essential part of Ukrainian society, history, and culture, so it deserves special recognition and preferences, e.g. as tax exemption.


Do all the religious organizations have such preferences? 


Yes, all the official religious organizations have them. They should be double registered as a legal entity and a religious organization.


Now let’s imagine that there exists a group of people, who have gatherings  and call themselves a religious organization with some religious beliefs and practices. Such gatherings are yet unofficial. They may be called a religious sect or a hobby club, depending on what they do. At this stage, they are not  recognized by the state, therefore they do not get any benefits. At some point such a group intends to become legal and obtain some economic preferences, then it has to undergo state registration. A registered religious organization should have an official charter, which does not infringe the legislation of Ukraine. After the registration an organization gets explicit benefits, such as exemption from some taxes (for example, real estate tax) or additional privileges (on land tax).


Is it possible that basically every religious sect can be directly supported by the state as a religious organization?


Right, religious organizations can get state support. Probably, it may become a great incentive for sects to become legal. Therefore, state benefits could be seen as a good thing. Religious organizations have incentives to become more  transparent and accountable. The official registration helps maintaining legality and trust. Alternatively, there may be risks of inappropriate use of benefits after registration (i.e. opportunism). Nevertheless, today the church is a crucial institute of Ukrainian national and historical identity. There is consensus in Ukrainian society – Ukrainians trust the church and consider it to be an essential part of our culture, so they agree with the church receiving some benefits.


Churches as non-profit organizations have a simplified accounting and mostly work with cash only. Can this money be used to fund illegal activities, such as separatism?


In my opinion such a risk exists. Moreover, political elites might benefit from this situation.. If we look back at the times of the Maidan of 2004, many priests were propagandists. On the one hand, political elites  are interested in loyal religious organizations – churches and priests help promoting their agenda. On the other hand, eligious organizations are interested in political elites to receive benefits. Therefore, the vicious circle is under way:

: religious organizations can enrich themselves and pay off the “debt” to the state as loyalty. This situation has not been studied much in Ukraine, however there is more information regarding neighbouring Russian Federation. Russian journalists and researchers even called Russian patriarch “the cigarette king”, because the church had the right to sell goods (that is, cigarettes) without taxes. Similar schemes are likely to function in Ukraine. The authority turns a blind eye to certain fraud while the church enriches itself giving loyalty to the state.


Are there any studies showing how churches change when state benefits no longer work for them?


It is an interesting topic. Unfortunately, there are no such studies, however there are some similar ones. The latter ones don’t look into the church resources directly, but they examine the quantity of religious communities or buildings. These indicators indirectly show whether a religious organization has any power. From the early 1990-s the number of such communities was substantially growing. In the early 1990-s the Ukrainian Orthodox Church of Moscow Patriarchate had up to 5 thousand parishes, now there are more than 14 thousand, that is, the number has grown thrice. Other churches were growing more slowly. For example, the Ukrainian Orthodox Church of Kyiv Patriarchate has grown from about 1500 parishes in the early 1990-s to about 5000 now.


Moreover statistical models show that if there is competition between religious groups in some region of Ukraine, then consequently, people will be more religious. That is, competition is the source of religiousness of people.


With this in mind, it will be interesting to observe the results of tomos. Ukraine strives to establish a new Autocephalous Orthodox Church, which will have the same rights as other churches in the orthodox world. Currently, a few jurisdictions of Orthodox Church function in Ukraine. Despite Moscow Patriarchate being autonomous, it remains part of Russian Orthodox Church. However Autocephalous Orthodox Church and Kyiv Patriarchate are not legitimately recognized by others. To put it simply, we are willing to move from the system of several Orthodox Churches to the system of one Orthodox Church. In addition, it has to be legitimate and recognized as such internally and externally. But it is not that easy. Will Moscow Patriarchate become a part of this new church? When will Kyiv Patriarchate unite with Autocephalous Church and under what conditions will this happen? Those are open questions. As a result, competition between churches in regions may diminish (if different churches unite into one) or may remain the same.


Our models show that diminishing of competition leads to diminishing of religiousness. Therefore, tomos may affect the religiousness of people. Irony lies in the fact that the idea of tomos is to improve the quality of church congregation. One church is believed to be better, because people will recognize it as legitimate and will attend more often. However evidence indicates that the system of our church instead of several ones may lead to opposite results (unless additional factors, not included into the model, start to make an influence). Unfortunately, Ukrainian state and religious actors haven’t accounted for this fact (that is, the role of competition) when planning to establish Autocephalous Church.


Why does competition increase the level of religiousness among people?


There exist many theories and empirical studies that clearly explain why religiousness increases in some country at some point in time. Usually it grows up when there is crisis or stress with life full of risks and unexpected situations. On the other hand, churches are active players doing their best to support religious congregations and attract new people. In the 1980-s and the 1990-s economists and sociologists worked together to formulate the theory of religious markets, which describes the role of churches (the theory works only for democratic countries). It states that an average level of religiousness will remain the same or increase where there is religious competition. Why is that so? It happens, because under competition churches have more incentives to develop and improve the conditions of their congregations. Under no competition churches will become “couch potatoes”. They will have no incentives to meet the expectations of people, which in the long-run leads to church members leaving the religious organization or not taking an active part in the religious life. Data, collected and analyzed by us, confirms these facts. The theory of religious markets is successful in Ukraine if post-soviet transformations and competition among orthodox organizations are taken into account.


Valentyn Litvinov, KSE student, interviewed Tymofii Brik. Maryna Shykun and Mykola Kravets, also KSE students, translated the article from Ukrainian into English.